Ways to Improve Productivity, Reduce Waste & Increase Profit
Is your productivity under achieving ? You say “no” right away, but almost every business has places where they could be more efficient.
Profit Drain #2 – Under Achieving Productivity
Tag Archives: Cash Flow
TEAMS
A team is a way of organizing different people with different goals and plans. When a team is successful, it funnels the energy of team members for the overall good. Your team is also probably your biggest single expense, so it’s important to get the most out of them!
Do You Have The Right People On Your Team?
The goals of a company should be consistent and match what their ultimate vision is. Teamwork is always the most effective when the goal is clear to all employees and spelled out in a way that everyone can understand. Even the most diverse group of people should be able to accomplish their goals in a timely manner if each member of the team understands the point and importance of working together. Successful teams have figured out how to assess themselves and able to check their progress along the way.
Having an Employee That Stands Out
In every group and team, strong leadership is important. This doesn’t mean that a manager needs to bully the team to maintain control, but able to guide the development of the group and potentially educate along the way. This can be done many different ways, such as by defining specific roles and responsibilities for members of the group, as well as a timeline for the common project so members can understand the place of their role within the timeline. An effective team leader can recognize how personalities affect team dynamics. Each person working within a group brings to that group his or her own personality and skill set. Recognizing each person’s style of work, motivation, and level of understanding can help a manager understand how that person fits within the group as a whole. You may have some employees that are better working in a specific group with a specific skill set – and others may be better working independently.
Without The Right Team – Your Business Can’t Grow
Unfortunately for all those who contribute positively, there may also be those whose behavior, attitude, or work habits negatively affect the dynamics of the group. Aggressive personalities that intimidate other group members or those who seem to always be “off-task” are easy to identify. A manager who recognizes and reacts quickly to these personalities can influence the dynamic of the group in positive ways. If each member of the group sees his or her contribution as valuable and accountable to the larger group, then less disruption is likely to occur. Team leaders should work to create an environment that fosters teamwork and collaboration that will empower employees. Empowered employees will act independently and require minimal direction. They will take responsibility for their actions and be accountable for the results of their work.
Make Things Possible!
Training and development are essential for the creation of teams. The right employee training, development, and education can provide dividends for the employer in increased productivity, knowledge, loyalty, and contribution from employees. Training is the process of teaching and learning specific knowledge or skills to improve performance. Development focuses on employee growth and future performance. Training that helps each employee grow their skills and knowledge to better perform their current job is appreciated as a benefit. The opportunity for development increases employee loyalty including retention rate and helps you attract the best possible employees.
Customer Satisfaction
CUSTOMER SATISFACTION
Following up on our last blog about numbers, we will discuss the importance of Customer Satisfaction. A vital part of any business is how your consumers feel about operations.
What Are Your Customers Saying About You?
The most successful companies always include customer feedback into their meetings. It is no longer an option, but a necessity to review and more importantly understand your customer’s feedback – this will help initiate change and create better customer experiences. Customer feedback isn’t always specifically about pleasing the customers, but many organizations use it as fuel for new product (or service) development and internal motivation factor as well. Strong customer satisfaction ratings will usually go to the companies that have well defined and respected internal values. Retention of customers often begins with a high retention rate within the organization.
Are They Happy? Or Are There Issues?
When conflicts arise, it’s equally important to limit any damage while mending the relationship with your customer. Employees should demonstrate empathy when handling angry or upset customers, allowing customers to express themselves and respond. By customers demonstrating a clear understanding of their problem, it will help you will resolve as soon as possible. Tracking customer complaints can help prevent future problems as well as identify any issues that may occur within your organization. Following up is vital to ensure customers received appropriate care and service and a resolution was provided.
Are There Other Products & Services to Provide Your Customers?
The internet has created over-educated consumers resulting in fewer impulse buyers than ever before. The world is now full of consumers who stop and investigate variables they never considered before. Winning customers over your competition is a delicate balance of your customer knowing they’ve done their due diligence and feeling good about being an educated shopper. However, keep in mind that no matter how intelligent your customers are, or how much expertise you provide them, your business will likely not be remembered for what you said or did, but for how you made customers feel. Confidence, excitement, trust, reliability; these are all feelings that lead to customer satisfaction. Even in a successful situation if a completed project fails to elicit a positive emotional response, you’ll almost certainly be an afterthought in that customer’s mind.
Are You Getting Referrals?
Earning new customers is important but many businesses often forget about keeping the customers they already have. Many businesses don’t consider customer service as a cost that requires heavy investment but if you don’t prioritize support and consistently work to deliver excellent service to your customers, then it’s only going to cost money…and eventually customers. Customers abandon products and services because they get lost, don’t understand something, feel they don’t get value from the product, or simply lose interest. If your customers stop hearing from you, and you stop helping them get value then you risk losing them in the future. For most businesses, customers are the largest resource upon which the success of the business depends.
Again, make sure you talk to your customers – or rather, listen!
Four ways to assess your business health
With the start of a new year comes promises to become healthier. There are plenty of ways to assess your physical health (weight, BMI, cholesterol, resting heart rate, blood pressure, etc.) Why shouldn’t we be looking at our businesses similarly? When thinking about the health of your business, here are four areas to review when assessing.
Numbers – Of course I have to start here. Do you know if you are profitable? Do you know which of your services, products, and clients are more or less profitable? Do you know what your cash flow need looks like? Do you know what your customer retention rate is? And the lifetime value of a customer? These are all great starting points, and we’ll dive deeper in the coming months.
Customer Satisfaction – Do you know what your customers are thinking and saying about you? Are they happy? Thrilled? Or are they liable to jump ship as soon as there’s another alternative? Are there other products or services that you could be providing them? Are they referring you to their peers? Talk to you customers, or rather, listen!
Team – Do you have the right people on your team? Are they in the right roles? Do you have a stellar assistant or number two that can take much off your plate? Are your people growing and learning more about your business? Are you delegating effectively? Without the right team in place, you can’t grow your business and keep your customers satisfied. Having the right team makes everything else possible.
Mission/Purpose/Brand – Do you know why you’re in business? Yes, you’re delivering a specific product or service, but what do you hope to achieve by delivering that product or service? What’s important to you in achieving that? I’ve lumped these three different topics into one for a reason – they are what make your company stand out. If for example – if your mission is to make financial forecasting accessible to any small business owner, you’re going to use basic English in your communications – not a bunch of financial gobbledygook. You’re also going to offer a reasonably priced product and not something that costs a mint and needs a team of IT specialists to “implement”. If your mission is to educate the world on the benefits of sustainable farming, you’re going to be investing in programs that further your goals and not just selling the fruits (and vegetables) of your labor. Keeping your purpose in sight lets you make decisions that are consistent and authentic to who you are.
These are just a few ways to assess the health of your business. Besides numbers, customer satisfaction, team, mission, purpose, and brand – what other areas do you look at when observing your business’s overall health?
As we plan to dive deeper into these topics each week, it’s important to try and answer these questions for the upcoming year. Making your business strong in all areas will help with the financial and overall success.
How To Price Your Small Business
How To Price Your Small Business
One of the reasons behind small business success, is appropriate pricing. When you price your product accurately, it can really help build the foundation for your business to succeed. The same goes for pricing your product or service incorrectly, your business may face problem that has trouble overcoming.
It’s not an easy task to develop and initiate pricing – in fact, most business owners say it can be one of the toughest tasks to think about. If you’re thinking about revamping your pricing for the new year, here are some tips on getting the price right.
- Service Costs
Every business has different services costs, and not accounting for them can cause financial issues. It’s important to analyze the cost of each service, to set the maximum profit and reduce any unprofitable services.
One way of pricing your services, are to analyze your total costs. Elements to factor are:
- Material costs
- Labor costs
- Overhead costs
Always be sure to pay attention and never underestimate your labor costs. It happens all the time to small business owners.
- Competitor Pricing
What are your competitors doing? Sometimes it’s not just about covering your operating costs, but also about where you want to position yourself in the marketplace? Think about where you want your brand – do you want to be a low-end competitor in a high market? Or maybe the high-end competitor? Seeing what your competitors are doing and figure out what will get you the best understanding of the market.
A tip to keep in mind is, don’t try to compete with large store pricing. Most of the time they buy in large volumes so their costs are much less. Try to highlight other values of your company, such as excellent customer service.
- Understand Conversions
Do you know if you’re actually making a profit on a product or service? For example, if you’re getting only 10% of sales on a product that you’ve introduced – maybe you’re proceed too high. If you consider dropping the price by 15%, you could increase your conversion rate almost by 4.
Basically, never assume things are just ok – always look to see what could be improved and be more profitable.
- Price Higher Than You Would
Most business owners underprice their services. Not charging enough is a common issue for small businesses because they often don’t have the operational efficiencies of large competitors. The one advantage that a small business has over a larger company, is service – that is more valuable than anything.
Other reasons that can help you justify your higher prices over your competitors are:
- Satisfaction with Customer Complaints
- Knowledge of Product or Service
- Helpful and Friendly Employees
- Convenient Location
- Exclusive Products or Services
- Pricing Below Competition
If you want to stay on the low-end or the competitive pricing, remember that your profit margin will drop – so you will need to think about your costs. To stay low with prices, think about the following:
- Inexpensive Business Location
- Inventory Control
- Limit Product Lines to Fast-Moving Items
- Design Ads for “Price Specials”
- Offer Limited Services
This strategy can be successful, but could be difficult to maintain. Remember that your competition can match your lower price.
Have questions or need help developing a price plan? Email me at judi.otton@growth-cast.com.
Understanding Your Balance Sheet
Being able to understand the different types of financial documents and information your business has should help you better understand your financial position. Learning how to decode a balance sheet will help give you the tools you need to make important decisions about your business.
A balance sheet, or sometimes called a “statement of financial position” provides a snapshot of your company’s financial position on a given date. This statement gives you details of your assets, liabilities and equity – and is usually prepared at the end of a reporting period, such as a month, quarter or year.
The balance sheet is based on the basic accounting equation: Assets (value of everything the business owns) = Liabilities + Owner’s Equity (How the business paid for the assets). Most statements report assets in the left and liabilities and equity detailed on the right. They should both be consistent with the equation – having the same dollar amount for each side.
Assets –
Assets are best described as anything your company owns that has some sort of monetary value. Your assets are concrete items, such as cash and inventory – as well as marketable securities. Different types of assets are listed on the balance sheet based on how quickly they can turn into cash if needed.
- Current Assets – Cash, inventory, accounts receivable, short-term investments and pre-paid expenses.
- Fixed Assets – Long-term assets such as property and equipment. Cannot be converted into cash for at least one year. Depreciation must be calculated.
- Other Assets – Intangibles, like patents or trademarks held (only if you know their fair market value).
Liabilities –
This is what your business owes, in order of how soon the payment is due. For example, liabilities reflect all the money that your business owes to others – including loans, wages and other debts. Just like assets, liabilities are also categories based on their due date in which you expect to pay them.
- Current Liabilities – Accounts payable, accrued wages, taxes and interest due within a year.
- Long-Term Liabilities – Mortgages, bank loans and anything due in more than a year.
Owners’ Equity –
Sometimes called net worth or net assets, represents the assets that remain after you deduct what you owe. Valuing a business can be extremely complex – the owners’ equity doesn’t always represent the current market value of your business. Depending on the legal structure of your business, such as if you’re a sole proprietor, in a partnership or have stockholders, can also reflect on your owners’ equity.
- Owner’s Equity – The money you have left over after selling everything in the company and paying off liabilities.
Balancing Act –
Assets and liabilities should “balance” out. Typically, balance sheets include previous data for comparison. Calculating the basic financial ratios can track the performance of your business, identify trends and help implement the strategies of your business.
Data from other balance sheets compared with current ones can help guide you to an even more in-depth understanding of your business’ finances. Of course, I am here to help guide you through these complex statements and help manage your business finances for the future.
End-of-the-Year Checklist for Small Businesses
I love this time of year! Thanksgiving is my favorite holiday. It’s tempting to focus on holidays, traveling and family visits, but tend to forget about your businesses 4th quarter closing. Now is the time of year where your business needs your attention the most, especially when it comes to your finances. Keeping on top of the details between November 1st and January 1st will not only keep you on top of year-end closings but off to a strong start in the New Year.
Here is a checklist of what you need to do for your business before the end of the year.
- Accounting – Make sure you’re maintaining excellent financial records throughout the year. By December, it will be extremely helpful for you and your accountant.
- Running Reports – Take a look at where your business stands financially, compared to other years. You’ll want to run a profit and loss statement, a balance sheet and a cash flow statement. By looking at these reports will give you a good indication of where you are financially and where you are headed.
- Analyze Cash Flow Statements – By looking at your cash flow, you can see how your money was spent throughout the year. There is three specific aspect’s that you’ll want to analyze:
- Operating activities (revenue and expenses); investing activities (assets purchased and assets sold); financial activities (loans and repayments).
- Vendor Information – Make sure all your vendor information is corrected in your system. Purge or disregard any inaccurate information or if you don’t need to reconnect with them.
- Reconcile Accounts Receivable – Make sure you have a list of outstanding invoices or which clients still owe you money. Try to get these settled before the end of the year to give next year a fresh start.
- Double-Check Payroll – Stay on top of any issues which may need your attention. Don’t forget to check any health and life insurance benefits as well.
- If you have big purchases your considering and have a profit, this is an excellent time to make those purchases and reduce your tax liability.
- Make an appointment with your accountant to discuss any other tax saving strategies you can take advantage of before year end.
- Information Technology (IT)
- Back It Up – Make sure all your account files and client files are backed up and secure. Have an external hard drive available or cloud-based system.
- Back-Up Contacts – If you do most of your business over the phone or computer, make sure you back them up – even if you have to keep an old address book.
- Download Files – Dropbox is perfect for keeping documents and reports as a back-up. The Golden Rule for data backup is 2:1 – create 2 separate digital copies in 2 separate places and 1 offline copy.
- Evaluate Your File System – Creating a file-naming system is especially important in businesses, especially those share servers. Make sure any and all files are uniform to the method you prefer.
- Human Resources
- Bonuses – Decide if you want to offer a bonus or other end-of-year incentive before the end of the year. Doing it before January will impact your profits report.
- Staffing Needs – Take an inventory of your current staff and determine if you’ll need to hire more employees for the next year. Make sure you budget these additional expenses in the upcoming year.
- Collect Accomplishments – What milestones have you and your company accomplished? Acknowledge them and your staff for an outstanding performance.
- General Business
- Inventory – Make sure you conduct an inventory count before the year’s end and make corrections as needed. This is the time to make sure you are not only keeping accurate records but not experiencing any loss.
- Make New Goals – Have you accomplished any of your goals this year? What about next year? How will your path be different for the upcoming year? Also – write down your financial goals and talk to a professional (like us!) about how to achieve them.
- Check Your Website – When was the last time you did a thorough look through your website? Make sure every button works, every phone number is correct ad links are working properly. It’s imperative to make sure everything is in working order.
Closing out for the end of the year can seem like an overwhelming task – but staying on top of your business goals and finances will make next year a lot easier.
Still have questions? Email me at judi.otton@growth-cast.com to help plan your own check-list.
#1 Tip on Dealing with Cash Flow Issues
I was recently asked for my #1 tip regarding small businesses and how they deal with cash flow problems and issues. While keeping up with your collections and invoicing promptly are essential, my number one tip is to avoid these crises entirely.
The best way for small businesses to deal with cash flow issues is to have a system in place that allows you to see the issues coming; avoiding or mitigating the problem before it becomes a crisis. Many small business owners have had that panicked “how am I going to make payroll?!?” moment. If you have a forecasting system in place, you can see this coming in advance and give yourself a chance to gather solutions. That may mean any of the following: securing a short term loan, transferring money from somewhere else, liquidating assets, or working out an arrangement to delay payments elsewhere.
Furthermore, if you’re a growing business, temporary cash flow issues are inevitable and should be expected. It’s likely that you’re putting out money for inventory, equipment, and staff to handle the growth before you receive the revenue. In this situation, having a line of credit in place is a must – but again, that needs to be arranged in advance.
To sum this all up, handle cash flow issues in the least stressful way possible – avoiding them!
After all, don’t we already have enough stress?
What affects your cash flow?
It’s important to know what is affecting your cash flow. Most business owners understand that profitability and cash flow are not the same thing, but not all understand the reasons why. Here are a few of the biggest:
Timing
The biggest difference between cash flow and profitability for a small business owner is timing. You may be selling a widget for $1,000 that cost you $600 to make or buy. This makes you $400 in profit, but until you get paid your cash flow is -$600. Yes, this is a simple example, but it’s so common that it deserves an explanation.
Inventory
If you’re buying widgets in advance, you’re holding on putting cash into your inventory. That’s important if you operate a business where the customer expects to receive the product instantly or quickly. Make sure you’re monitoring your inventory levels and not putting too much of your valuable cash here. A lot of work goes into doing this well, but your primary concern is really understands your business and its cycles.
Collections
If your customers usually pay you in 30 days, your cash flow slows down by that much. That may be acceptable, but if they start to unexpectedly stretch out upwards of 60- 90 days, that’s even more of your cash tied up in receivables. This can get out of hand very quickly and really strangle a business. It’s best to keep track of this very closely and address any late invoices as quickly as possible.
Capital Expenditures
Your equipment eventually will need to be repaired or replaced. If unexpected, this can really mess with your cash flow, as expenses like this are typically substantial. Planning in advance for upgrades can help, and knowing where you stand can make it slightly less painful when something should come up unexpectedly.
Growth
This last reason is the most interesting because it’s universally accepted as a good thing, which it is. Just keep in mind that growth has an initial negative impact on cash flow. That’s because you are typically fronting the money for the increased demand of goods and services before you’re getting paid for them. If you’re growing very quickly and/or your terms are very long, a big need for cash to fund growth will arise. Make sure you’re prepared and know what you’ll need for reserves or back up so you can take advantage of the growth as it comes.
Focus on Cash Flow
In the article listed below, Guy Kawasaki urges us to “focus on cash flow, not profitability” – I love it! Many profitable (on paper at least) businesses have run into any number of problems, from difficulties making payroll to (unfortunately) completely going out of business.
That’s why they always say, “cash is king.” Kawasaki gives two great tips in his article about cash flow– keep up with your receivables, and focus on shortening your sales cycle. In addition to these two tips, you should also invoice as quickly as possible. The sooner you get an invoice into the hands of your customer, the sooner you’re likely to get paid. Do you have any other suggestions or ideas?
Want to read the full cash flow article?
